End of Year Reporting - Benefits and Expenses

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Do you own a business? Have you paid your employees or directors any benefits or expenses in the past year? If so, you may need to consider whether you have any reporting obligations as the current tax year draws to an end.

Taxable expenses and benefits need to be reported to HM Revenue & Customs by 6th July. Depending on the type of expense or benefit provided, forms P11D or P9D must be used. These must be accompanied by form P11D(b) to report any Class 1A National Insurance Contributions (NIC) in respect of the benefits and expenses paid.

A copy of the relevant form must also be given to the employee or director by the same date. Any Class 1A NIC due must be paid over to the Revenue by 19th July for cheque payments or 22nd July for other payment methods.

Therefore, some business owners may be faced with a significant amount of paperwork - and if you are late submitting your reports HMRC can charge penalties of £100 per 50 employees for each month, or part month, that the forms are late; in addition, late payment of tax and national insurance will also incur interest and penalties.

However, some expenses and benefits are eligible for a dispensation from HMRC which means that they won’t need to be reported on forms P11D or P9D. These are usually routine payments, such as travel costs, business entertaining or professional subscriptions. An employer can apply for a dispensation at any time and it will normally be effective from the date of issue; and for some benefits and expenses, depending on the date of application, it may be backdated to the beginning of the tax year. Even if a dispensation has been granted employers will still need to keep evidence to support expenses claims, and these do need to be checked by someone other than the employee or director claiming the expense.

Employers may also wish to consider applying to HMRC for a PAYE Settlement Agreement (PSA) to be put into place in connection with certain payments made to their employees. A PSA enables the employer to make a single one off payment in respect of the tax and NIC due on small, irregular or one off payments to their employees. This could be used, for example, where an employer has given a birthday present to an employee, or where there has been a shared journey and it is impractical to work out the cost between different employees.

If an application for a PSA is made after the start of a tax year some benefits and expenses paid prior to the date of the PSA agreement may still need to be reported on forms P11D or P9D, so employers considering a PSA for 2015/16 need to act promptly. An application is made by writing to HMRC confirming which benefits and expenses are to be covered by the PSA. Once the Revenue has agreed what can be included and the request has been authorised, they will issue the employer with a signed PSA agreement for their records. After the end of the tax year, the employer will need to complete and submit form PSA1 to calculate the amount of tax and NIC due; with payment of the liabilities becoming due by 19 October following the end of the tax year for cheque payments, or 22nd October for other payment methods.